English

Pronunciation

A tax is a financial charge or other levy imposed on an individual or a
legal
entity by a state or a
functional equivalent of a state (for example, secessionist movements or
revolutionary
movements). Taxes are also imposed by many subnational
entities. Taxes consist of direct tax or
indirect
tax, and may be paid in money or as its labour equivalent
(often but not always unpaid). A tax may be defined as a "pecuniary
burden laid upon individuals or property to support the government
[…] a payment exacted by legislative authority." A tax "is not a
voluntary payment or donation, but an enforced contribution,
exacted pursuant to legislative authority" and is "any contribution
imposed by government […] whether under the name of toll, tribute,
tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply,
or other name." may be imposed on the non-paying entity or
individual.

Tax can result in anything from the mechanisms of
slavery to the fruits of re-distributive social revolution,
depending on the details of its implementation.

Governments use different kinds of taxes and vary
the tax rates. This is done to distribute the tax burden among
individuals or classes of the population involved in taxable
activities, such as business, or to redistribute
resources between individuals or classes in the population.
Historically, the nobility were supported by
taxes on the poor; modern social
security systems are intended to support the poor, the
disabled, or the retired by taxes on those who are still working.
In addition, taxes are applied to fund foreign and military aid, to
influence the macroeconomic performance
of the economy (the government's strategy for doing this is called
its fiscal
policy - see also tax
exemption), or to modify patterns of consumption or employment
within an economy, by making some classes of transaction more or
less attractive.

A nations tax system is often a reflection of its
communal values or the values of those in power. To create a system
of taxation, a nation must make choices regarding the distribution
of the tax burden — who will pay taxes and how much they will pay —
and how the taxes collected will be spent. In democratic nations
where the public elects those in charge of establishing the tax
system, these choices reflect the type of community which the
public wishes to create. In countries where the public does not
have a significant amount of influence over the system of taxation,
that system may be more of a reflection on the values of those in
power.

The resource collected from the public through
taxation is always greater than the amount which can be used by the
government. The difference is called compliance cost, and includes
for example the labour cost and other expenses incurred in
complying with tax laws and rules. The collection of a tax in order
to spend it on a specified purpose, for example collecting a tax on
alcohol to pay directly for alcoholism rehabilitation centres, is
called hypothecation. This
practice is often disliked by finance
ministers, since it reduces their freedom of action. Some
economic theorists consider the concept to be intellectually
dishonest since (in reality) money is fungible. Furthermore, it
often happens that taxes or excises initially levied to fund some
specific government programs are then later diverted to the
government general fund. In some cases, such taxes are collected in
fundamentally inefficient ways, for example highway tolls.

Some economists, especially neo-classical
economists, argue that all taxation creates market
distortion and results in economic inefficiency. They have
therefore sought to identify the kind of tax system that would
minimize this distortion. Also, one of every government's most
fundamental duties is to administer possession and use of land in
the geographic area over which it is sovereign, and it is
considered economically efficient for government to recover for
public purposes the additional value it creates by providing this
unique service.

Since governments also resolve commercial
disputes, especially in countries with common law,
similar arguments are sometimes used to justify a sales tax or
value added
tax. Others (e.g. libertarians)
argue that most or all forms of taxes are immoral due to their
involuntary (and therefore eventually coercive/violent) nature. The
most extreme anti-tax view is anarcho-capitalism,
in which the provision of all social services should be a matter of
voluntary private contracts.

The Four "R"s

Taxation has four main purposes or effects:
Revenue, Redistribution, Repricing, and Representation.

The main purpose is revenue: taxes raise money to
spend on roads, schools and hospitals, and on more indirect
government functions like good regulation or justice systems. This
is the most widely known function.

Proportional, progressive, and regressive

An important
feature of tax systems is the percentage of the tax burden as it
relates to income or consumption. The terms progressive,
regressive, and proportional are used to describe the way the rate
progresses from low to high, from high to low, or proportionally.
The terms describe a distribution effect, which can be applied to
any type of tax system (income or consumption) that meets the
definition. A progressive
tax is a tax imposed so that the effective
tax rate increases as the amount to which the rate is applied
increases. The opposite of a progressive tax is a regressive
tax, where the effective tax rate decreases as the amount to
which the rate is applied increases. In between is a proportional
tax, where the effective tax rate is fixed as the amount to
which the rate is applied increases. The terms can also be used to
apply meaning to the taxation of select consumption, such as a tax
on luxury goods and the exemption of basic necessities may be
described as having progressive effects as it increases a tax
burden on high end consumption and decreases a tax burden on low
end consumption.

Direct and indirect

Taxes are sometimes referred to as
direct tax or indirect tax. The meaning of these terms can vary in
different contexts, which can sometimes lead to confusion. In
economics, direct taxes refer to those taxes that are collected
from the people or organizations on whom they are ostensibly
imposed. For example, income taxes are collected from the person
who earns the income. By contrast, indirect taxes are collected
from someone other than the person ostensibly responsible for
paying the taxes. In law, the terms may have different meanings. In
U.S. constitutional law, for instance, direct taxes refer to
poll
taxes and property
taxes, which are based on simple existence or ownership.
Indirect taxes are imposed on rights, privileges, and activities.
Thus, a tax on the sale of property would be considered an indirect
tax, whereas the tax on simply owning the property itself would be
a direct tax. The distinction can be subtle between direct and
indirect taxation, but can be important under the law.

Tax burden

Law establishes from whom a tax is collected. In
many countries, taxes are imposed on business (such as corporate
taxes or portions of payroll
taxes). However, who ultimately pays the tax (the tax "burden")
is determined by the marketplace as taxes become
embedded into production costs. Depending on how quantities
supplied and demanded vary with price (the "elasticities" of supply
and demand), a tax can be absorbed by the seller (in the form of
lower pre-tax prices), or by the buyer (in the form of higher
post-tax prices). If the elasticity of supply is low, more of the
tax will be paid by the supplier. If the elasticity of demand is
low, more will be paid by the customer. And contrariwise for the
cases where those elasticities are high. If the seller is a
competitive firm, the tax burden flows back to the factors
of production depending on the elasticities thereof; this
includes workers (in the form of lower wages), capital investors
(in the form of loss to shareholders), landowners (in the form of
lower rents) and entrepreneurs (in the form of lower wages of
superintendence).

To illustrate this relationship, suppose the
market price of a product is US$1.00,
and that a $0.50 tax is imposed on the product that, by law, is to
be collected from the seller. If the product is a luxury (in the
economic sense of the term), a greater portion of the tax will be
absorbed by the seller. For example, the seller might drop the
price of the product to $0.70 so that, after adding in the tax, the
buyer pays a total of $1.20, or $0.20 more than he did before the
$0.50 tax was imposed. In this example, the buyer has paid $0.20 of
the $0.50 tax (in the form of a post-tax price) and the seller has
paid the remaining $0.30 (in the form of a lower pre-tax
price).

Morality

According to many political views, activities
funded by taxes can be beneficial to society and progressive
taxation can be used in modern nation-states to the benefit of
the majority of the population and social
development. Most arguments about taxation revolve around the
degree and method of taxation and associated government
spending, not taxation itself.

Government theft

Because payment of tax is usually compulsory and
enforced by the police and justice system, some capitalistpolitical
philosophies view taxation by force as institutionalized
violence equivalent to theft, accusing the government of levying taxes
via coercive means.
Individualist
anarchists, objectivists,
anarcho-capitalists,
and some libertarians see taxation as
government aggression (see Zero
Aggression Principle). The libertarian writer Jason C.
Reeher echoed the sentiments of Murray
Rothbard on these grounds; in criticizing his local school
district's relatively small property tax
increase, Reeher said that "(t)he thief who steals the least is
still a thief." Under this view, taxes are paid individually and
therefore, to be considered voluntary, in any meaningful way,
should be levied only with the consent of the individual. Some
libertarians recommend a minimal level of taxation in order to
maximize the protection of liberty, while others prefer
market alternatives such
as private
defense agencies, arbitration agencies or
voluntary contributions. Others claim that the examples where
taxation and the state function of civil protection has collapsed
and replaced by private defense agencies (such as in countries like
Somalia),
the results have been largely positive.

Democratic defense

One counter-argument is that in a democracy, because the
government is the party performing the act of imposing taxes,
society as a whole decides how the tax system should be organised.
The American
Revolution's "No
taxation without representation" slogan implied this view. The
same argument could be made from a monarchist perspective: since
the King embodies the nation, the nation as a whole decides how the
tax system should be organised. Similar arguments can be made to
justify taxation under any form of government, including
dictatorships and oligarchies.

Land Tax defense

Advocates of land
value taxation argue that sovereign rights over the products of
labour and capital do not apply to land. John Locke
wrote in
Essay on Civil Government (1690) that: "When the sacredness of
property is talked of, it should be remembered that any such
sacredness does not belong in the same degree to landed property."
Henry
George elaborated this to claim: "Here are two simple
principles, both of which are self-evident: I.—That all men have
equal rights to the use and enjoyment of the elements provided by
Nature. II.—That each man has an exclusive right to the use and
enjoyment of what is produced by his own labor" (Protection or Free
Trade, 1886).

Justification

Defenders of taxation argue that taxation of
business is justified
on the grounds that the commercial activity necessarily involves
use of publicly established and maintained economic infrastructure,
and that businesses are in effect charged for this use. Compulsory
taxation of individuals, such as income tax, is
argued to be justified on similar grounds, including territorial
sovereignty, and the
social
contract. A libertarian response is that government services
used by people are either already paid for directly or are services
that ought to be provided by a free market. Such taxes, they argue,
are a way for the rulers to exploit the people.

History

Taxation levels

The first known system of taxation was in
Ancient
Egypt around 3000 BC -
2800 BC in the first dynasty of the Old Kingdom. Records from
the time document that the pharaoh would conduct a biennial tour of
the kingdom, collecting tax revenues from the people. Early
taxation is also described in the Bible. In Genesis (chapter
47, verse 24 - the New
International Version), it states "But when the crop comes in,
give a fifth of it to Pharaoh. The other
four-fifths you may keep as seed for the fields and as food for
yourselves and your households and your children." Joseph
was telling the people of Egypt how to divide
their crop, providing a portion to the Pharaoh. A share (20%) of
the crop was the tax.

Quite a few records of government tax collection
in Europe since at least the 17th century are still available
today. But taxation levels are hard to compare to the size and flow
of the economy since production
numbers are not as readily available. Government expenditures and
revenue in France during the 17th century went from about 24.30
million livres in 1600-10
to about 126.86 million livres in 1650-59 to about 117.99 million
livres in 1700-10 when government debt had reached 1.6 billion
livres. In 1780-89 it reached 421.50 million livres. Taxation as a
percentage of production of final goods may have reached 15% - 20%
during the 17th century in places like France, the Netherlands,
and Scandinavia.
During the war-filled years of the eighteenth and early nineteenth
century, tax rates in Europe increased dramatically as war became
more expensive and governments became more centralized and adept at
gathering taxes. This increase was greatest in England, Peter
Mathias and Patrick
O'Brien found that the tax burden increased by 85% over this
period. Another study confirmed this number, finding that per
capita tax revenues had grown almost sixfold over the eighteenth
century, but that steady economic growth had made the real burden
on each individual only double over this period before the
industrial revolution. Average
tax rates were higher in Britain than France the years before
the French
Revolution, twice in per capita income comparison, but they
were mostly placed on international trade. In France, taxes were
lower but the burden was mainly on landowners, individuals, and
internal trade and thus created far more resentment.

Tithe - a
tax-like payment (one tenth of one's earnings or agricultural
produce), paid to the Church (and thus too specific to be a tax in
strict technical terms). This should not be confused with the
modern practice of the same name which is normally voluntary,
although churches have sought it forcefully at times.

Aids - During feudal times a feudal aid was a type of tax or
due paid by a vassal to his lord.

Danegeld -
medieval land tax originally raised to pay off raiding Danes and
later used to fund military expenditures.

Tax
Farming - the principle of assigning the responsibility for tax
revenue collection to private citizens or groups.

Some principalities taxed windows, doors, or
cabinets to reduce consumption of imported glass and hardware.
Armoires, hutches, and wardrobes were employed to evade taxes on
doors and cabinets. In extraordinary circumstances, taxes are also
used to enforce public policy like congestion charge (to cut road
traffic and encourage public transport) in London. In Tsarist
Russia, taxes were clamped on beards. Today, one of the most
complicated taxation-systems worldwide is in Germany. Three
quarters of the world's taxation-literature refers to the German
system. There are 118 laws, 185 forms, and 96,000 regulations,
spending €3.7
billion to collect the income tax. Today, governments of advanced
economies of EU, North America, and others rely more on direct
taxes, while those of developing economies of India, Africa, and
others rely more on indirect taxes.

Tax rates

Taxes are most often levied as a percentage,
called the tax rate. An important distinction when talking about
tax rates is to distinguish between the marginal rate and the
effective (average) rate. The effective rate is the total tax paid
divided by the total amount the tax is paid on, while the marginal
rate is the rate paid on the next dollar of income earned. For
example, if income is taxed on a formula of 5% from $0 up to
$50,000, 10% from $50,000 to $100,000, and 15% over $100,000, a
taxpayer with
income of $175,000 would pay a total of $18,750 in taxes.

Tax calculation

((0.05*50,000) + (0.10*50,000) +
(0.15*75,000)) = 18,750

The "effective rate" would be 10.7%:

(18,750/175,000) = 0.107

The "marginal rate" would be 15%.

Economics of taxation

In economic terms, taxation transfers wealth from households or
businesses to the government of a nation. The side-effects of
taxation and theories about how best to tax are an important
subject in microeconomics. Taxation
is almost never a simple transfer of wealth. Economic theories of
taxation approach the question of how to minimise the loss of
economic
welfare through taxation and also discuss how a nation can
perform redistribution of wealth in the most efficient
manner.

Deadweight costs of taxation

For goods supplied in a perfectly
competitive market, tax reduces economic
efficiency, by introducing a deadweight
loss. In a perfect market, the price of a particular economic
good adjusts to make sure that all trades which benefit both
the buyer and the seller of a good occur. After introducing a tax,
the price received by the seller is less than the cost to the
buyer. This means that fewer trades occur and that the individuals
or businesses involved gain less from participating in the market.
This destroys value, and is known as the 'deadweight cost of
taxation'.

The deadweight cost is dependent on the elasticity
of supply and demand for a good.

Most taxes — including income tax and
sales
tax — can have significant deadweight costs. The only
way to avoid deadweight costs in an economy which is generally
competitive is to find taxes which do not change economic
incentives, such as the Land value
tax, where the tax is on a good in completely inelastic supply,
or a lump sum
tax. To do so is very difficult: the closest approximations are
a poll
tax paid by all adults regardless of their choices, or a
windfall
tax which is entirely unanticipated and so cannot affect
decisions.

Double dividend taxes

In some cases where the economy is not perfectly
competitive, the existence of a tax can increase economic
efficiency. If there is a negative
externality associated with a good, meaning that it has
negative effects not felt by the consumer, then the free market
will trade too much of that good. By putting a tax on the good, the
government can increase overall welfare as well as raising revenue
in taxation. This is known as a 'double dividend'.

There are a wide range of goods where there is,
or is claimed to be, a negative externality. Polluting fuels (like
petrol), goods which
incur public healthcare costs (such as alcohol or tobacco), and charges for
existing 'free' public goods (like congestion
charging) all offer the possibility of a double dividend. This
type of tax is a Pigovian
tax, sometimes colloquially known as a 'sin tax'. It is
worthwhile noting that taxation is not necessarily the only, or the
best, method of dealing with negative externalities.

Optimal taxation theory

Most governments need revenue which exceeds that
which can be provided by non-distortionary taxes or through taxes
which give a double dividend. Optimal taxation theory is the branch
of economics that considers how taxes can be structured to give the
least deadweight costs, or to give the best outcomes in terms of
social
welfare.

Ramsey
optimal taxation deals with minimising deadweight costs.
Because deadweight costs are related to the elasticity
of supply and demand for a good, it follows that putting the
highest tax rates on the goods for which there is most inelastic
supply and demand will result in the least overall deadweight
costs.

Some economists have sought to integrate optimal
tax theory with the social
welfare function, which is the economic expression of the idea
that equality is valuable to a greater or lesser extent. If
individuals experience diminishing
returns from income, then the optimum distribution of income
for society involves a progressive income tax.
Mirrlees optimal income tax is a detailed theoretical model of
the optimum progressive income tax along these lines.

Over the last years the validity of the theory of
optimal taxation was discussed by many political economists.
Canegrati (2007) demonstrated that if we move from the assumption
that governments do not maximise the welfare of society but the
probability of winning elections, in equilibrium tax rates are
lower for the most powerful groups of society (and not for the
poorest as in the optimal theory of direct taxation developed by
Atkinson
and Stiglitz).

Transparency and simplicity

Another concern is that the complicated tax codes
of developed economies offer perverse economic
incentives. The more details of tax policy there are, the more
opportunities for legal tax
avoidance and illegal tax evasion;
these not only result in lost revenue, but involve additional
deadweight costs: for instance, payments made for tax advice are
essentially deadweight costs because they add no wealth to the
economy. Perverse incentives also occur because of non-taxable
'hidden' transactions; for instance, a sale from one company to
another might be liable for sales tax, but
if the same goods were shipped from one branch of a corporation to
another, no tax would be payable.

To address these issues, economists often suggest
simple and transparent tax structures which avoid providing
loopholes. Sales tax, for instance, can be replaced with a value added
tax which disregards intermediate transactions.

Economics of tax incidence

Economic theory suggests that the economic effect
of tax does not necessarily fall at the point where it is legally
levied. For instance, a tax on employment paid by employers will
impact on the employee, at least in the long run. The greatest
share of the tax burden tends to fall on the most inelastic factor
involved - the part of the transaction which is affected least by a
change in price. So, for instance, a tax on wages in a town will
(at least in the long run) affect property-owners in that
area.

Costs of compliance

Although governments must spend money on tax
collection activities, some of the costs, particularly for keeping
records and filling out forms, are borne by businesses and by
private individuals. These are collectively called costs of
compliance. More complex tax systems tend to have higher costs of
compliance. This fact can be used as the basis for practical or
moral arguments in favor of tax simplification (see, for example,
FairTax),
or tax elimination (in addition to moral arguments described
above).

Ad valorem

An ad valorem tax is one where the tax base is
the value of a good, service, or property. Sales taxes, tariffs,
property taxes, inheritance taxes, and value added taxes are
different types of ad valorem tax. An ad valorem tax is typically
imposed at the time of a transaction (sales tax or value added tax
(VAT)) but it may be imposed on an annual basis (property tax) or
in connection with another significant event (inheritance tax or
tariffs). An alternative to ad valorem taxation is an excise tax,
where the tax base is the quantity of something, regardless of its
price. For example, in the United
Kingdom, a tax is collected on the sale of alcoholic drinks
that is calculated by volume and beverage type, rather than the
price of the drink.

Environment Affecting Tax

Capital gains tax

A capital gains tax is the tax levied on
the profit released upon the sale of a capital asset. In many
cases, the amount of a capital gain
is treated as income and subject to the marginal rate of income
tax. However, in an inflationary environment, capital gains may be
to some extent illusory: if prices in general have doubled in five
years, then selling an asset for twice the price it was purchased
for five years earlier represents no gain at all. Partly to
compensate for such changes in the value of money over time, some
jurisdictions, such as the United
States, give a favorable capital gains tax rate based on the
length of holding. European jurisdictions have a similar rate
reduction to nil on certain property transactions that qualify for
the participation exemption. In Canada, 50% of the gain is taxable
income. In India, Short Term Capital Gains Tax (arising before 1
year) is 10% flat rate of the gains and Long Term Capital Gains Tax
is nil for stocks & mutual fund units held 1 year or more and
20% for any other assets held 3 years or more. If such a tax is
levied on inherited property, it can act as a de facto probate or
inheritance tax.

Consumption tax

A consumption tax is a tax on
non-investment spending, and can be implemented by means of a sales
tax or by modifying an income tax to allow for unlimited deductions
for investment or savings.

Corporation tax

Corporate tax refers to a direct tax levied
by various jurisdictions on the profits made by companies or
associations and often includes capital gains of a company.
Earnings are generally considered gross revenue less expenses.
Corporate expenses that relate to capital expenditures are usually
deducted in full (for example, trucks are fully deductible in the
Canadian tax system, while a corporate sports car is only partly
deductible). They are often deducted over the useful life of the
asset purchase. Notably, accounting rules about deductible expenses
and tax rules about deductible expense will differ at times, giving
rise to book-tax differences. If the book-tax difference is carried
over more than a year, it is referred to as a temporary difference,
which then creates deferred tax
assets and liabilities for the corporation, which are carried on
the balance
sheet.

Excises

Unlike an ad valorem, an excise is not a function
of the value of the product being taxed. Excise taxes are based on
the quantity, not the value, of product purchased. For example, in
the United States, the Federal government imposes an excise tax of
18.4 cents per US gallon (4.86¢/L) of gasoline, while state
governments levy an additional 8 to 28 cents per US gallon. Excises
on particular commodities are frequently hypothecated. For example, a
fuel
excise (use tax) is often
used to pay for public
transportation, especially roads and bridges and for the protection of
the environment. A special form of hypothecation arises where an
excise is used to compensate a party to a transaction for alleged
uncontrollable abuse; for example, a blank media
tax is a tax on recordable media such as CD-Rs, whose proceeds
are typically allocated to copyright holders. Critics
charge that such taxes blindly tax those who make legitimate and
illegitimate usages of the products; for instance, a person or
corporation using CD-R's for data archival should not have to
subsidize the producers of popular music.

Excises (or exemptions from them) are also used
to modify consumption patterns (social
engineering). For example, a high excise is used to discourage
alcohol
consumption, relative to other goods. This may be combined with
hypothecation if the proceeds are then used to pay for the costs of
treating illness caused by alcohol abuse. Similar taxes may exist
on tobacco, pornography, etc., and they
may be collectively referred to as "sin taxes". A
carbon
tax is a tax on the consumption of carbon-based non-renewable
fuels, such as petrol, diesel-fuel, jet fuels, and natural gas. The
object is to reduce the release of carbon into the atmosphere. In
the United Kingdom, vehicle
excise duty is an annual tax on vehicle ownership.

Income tax

An income tax is a tax levied on the financial
income of persons,
corporations, or other legal entities. Various income tax systems
exist, with varying degrees of tax
incidence. Income taxation can be progressive, proportional, or
regressive. When the tax is levied on the income of companies, it
is often called a corporate
tax, corporate income tax, or corporation tax. Individual
income taxes often tax the total income of the individual (with
some deductions permitted), while corporate income taxes often tax
net income (the difference between gross receipts, expenses, and
additional write-offs).

The "tax net" refers to the types of payment that
are taxed, which included personal earnings (wages), capital
gains, and business income. The rates for different types of
income may vary and some may not be taxed at all. Capital gains may
be taxed when realized (e.g. when shares are sold) or when incurred
(e.g. when shares appreciate in value). Business income may only be
taxed if it is significant or based on the manner in which it is
paid. Some types of income, such as interest on bank savings, may
be considered as personal earnings (similar to wages) or as a
realized property gain (similar to selling shares). In some tax
systems, personal earnings may be strictly defined where labor,
skill, or investment is required (e.g. wages); in others, they may
be defined broadly to include windfalls (e.g. gambling wins).

Personal income tax is often collected on a
pay-as-you-earn basis,
with small corrections made soon after the end of the tax year. These
corrections take one of two forms: payments to the government, for
taxpayers who have not
paid enough during the tax year; and tax refunds
from the government for those who have overpaid. Income tax systems
will often have deductions available that lessen the total tax
liability by reducing total taxable income. They may allow losses
from one type of income to be counted against another. For example,
a loss on the stock market may be deducted against taxes paid on
wages. Other tax systems may isolate the loss, such that business
losses can only be deducted against business tax by carrying
forward the loss to later tax years.

Inheritance tax

Inheritance tax, estate tax, and death tax or
duty are the names given to various taxes which arise on the death
of an individual. In United States tax law, there is a distinction
between an estate tax and an inheritance tax: the former taxes the
personal representatives of the deceased, while the latter taxes
the beneficiaries of the estate. However, this distinction does not
apply in other jurisdictions; for example, if using this
terminology UK inheritance tax would be an estate tax.

Poll tax

A poll tax, also called a per capita tax, or
capitation tax, is a tax that levies a set amount per individual.
One of the earliest taxes mentioned in the Bible of a
half-shekel per annum from each adult Jew (Ex. 30:11-16) was a form
of poll tax. Poll taxes are administratively cheap because they are
easy to compute and collect and difficult to cheat. Economists have
considered poll taxes economically efficient because people are
presumed to be in fixed supply. However, poll taxes are very
unpopular because poorer people pay a higher proportion of their
income than richer people. In addition, the supply of people is in
fact not fixed over time: on average, couples will choose to have
fewer children if a poll tax is imposed . The introduction of a
poll tax in medieval England was the primary cause of the 1381
Peasants'
Revolt, and in England and Wales in 1990 the change from a
progressive local taxation based on property values to a
single-rate form of taxation regardless of ability to pay (the
Community
Charge, but more popularly referred to as the Poll Tax).

Property tax

A property tax is a tax imposed on property by
reason of its ownership. A property tax is usually levied on the
value of property owned. There are three species of property: land,
improvements to land (immovable man-made things, e.g. buildings)
and personal property (movable things). Real estate or realty is
the combination of land and improvements to land.

Property taxes may be charged on a recurrent
basis (e.g., yearly). A common type of property tax is an annual
charge on the ownership of real estate,
where the tax base is the estimated value of the property. For a
period of over 150 years from 1695 a window tax was
levied in England, with the result that one can still see listed
buildings with windows bricked up in order to save their owners
money. A similar tax on hearths existed in France and elsewhere,
with similar results. The two most common type of event driven
property taxes are stamp duty,
charged upon change of ownership, and inheritance
tax, which is imposed in many countries on the estates of the
deceased.

In contrast with a tax on real estate (land and
buildings), a land value
tax is levied only on the unimproved value of the land ("land"
in this instance may mean either the economic term, i.e., all
natural resources, or the natural resources associated with
specific areas of the earth's surface: "lots" or "land
parcels").

When real estate is held by a higher government
unit or some other entity not subject to taxation by the local
government, the taxing authority may receive a payment in
lieu of taxes to compensate it for some or all of the foregone
tax revenue.

In many jurisdictions (including many American
states), there is a general tax levied periodically on residents
who own personal
property (personalty) within the jurisdiction. Vehicle and boat
registration fees are subsets of this kind of tax. The tax is often
designed with blanket coverage and large exceptions for things like
food and clothing. Household goods are often exempt when kept or
used within the household. Any otherwise non-exempt object can lose
its exemption if regularly kept outside the household. Thus, tax
collectors often monitor newspaper articles for stories about
wealthy people who have lent art to museums for public display,
because the artworks have then become subject to personal property
tax. If an artwork had to be sent to another state for some
touch-ups, it may have become subject to personal property tax in
that state as well.

Retirement tax

Some countries with social
security systems, which provide income to retired workers, fund
those systems with specific dedicated taxes. These often differ
from comprehensive income taxes in that they are levied only on
specific sources of income, generally wages and salary (in which
case they are called payroll
taxes). A further difference is that the total amount of the
taxes paid by or on behalf of a worker is typically considered in
the calculation of the retirement benefits to which that worker is
entitled. Examples of retirement taxes include the FICA tax, a
payroll tax that is collected from employers and employees in the
United
States to fund the country's
Social Security system; and the National
Insurance Contributions (NICs) collected from employers and
employees in the United
Kingdom to fund the country's national
insurance system.

These taxes are sometimes regressive in their
immediate effect. For example, in the United States, each worker,
whatever his or her income, pays at the same rate up to a specified
cap, but income over the cap is not taxed. A further regressive
feature is that such taxes often exclude investment earnings and
other forms of income that are more likely to be received by the
wealthy. The regressive effect is somewhat offset, however, by the
eventual benefit payments, which typically replace a higher
percentage of a lower-paid worker's pre-retirement income.

Sales tax

Sales taxes are a form of excise levied when a
commodity is sold to its final consumer. Retail organizations
contend that such taxes discourage retail sales. The question of
whether they are generally progressive or regressive is a subject
of much current debate. People with higher incomes spend a lower
proportion of them, so a flat-rate sales tax will tend to be
regressive. It is therefore common to exempt food, utilities and
other necessities from sales taxes, since poor people spend a
higher proportion of their incomes on these commodities, so such
exemptions would make the tax more progressive. This is the classic
"You pay for what you spend" tax, as only those who spend money on
non-exempt (i.e. luxury) items pay the tax.

A small number of US states rely entirely on
sales taxes for state revenue, as those states do not levy a state
income tax. Such states tend to have a moderate to large amount of
tourism or inter-state travel that occurs within their borders,
allowing the state to benefit from taxes from people the state
would otherwise not tax. In this way, the state is able to reduce
the tax burden on its citizens. The US states that do not levy a
state income tax are Alaska, Tennessee, Florida, Nevada, South
Dakota, Texas, Washington state, and Wyoming. Additionally, New
Hampshire and Tennessee levy state income taxes only on dividends
and interest income. Of the above states, only Alaska and New
Hampshire do not levy a state sales tax. Additional information can
be obtained at the Federation of
Tax Administrators website.

In the United States, there is a growing movement
for the replacement of all federal payroll and income taxes (both
corporate and personal) with a national retail sales tax and
monthly tax rebate to households of citizens and legal resident
aliens. The tax proposal is named FairTax. In Canada,
the federal sales tax is called the Goods and Services tax (GST)
and now stands at 5%. The provinces of British Columbia,
Saskatchewan, Manitoba, Ontario and Prince Edward Island also have
a provincial sales tax [PST]. The provinces of Nova Scotia, New
Brunswick, and Newfoundland & Labrador have harmonized their
provincial sales taxes with the GST - Harmonized Sales Tax [HST].
The province of Quebec collects the Quebec Sales Tax [QST] which is
based on the GST with certain differences. Most businesses can
claim back the GST, HST and QST they pay, and so effectively it is
the final consumer who pays the tax.

Tariffs

An import or export tariff (also called customs
duty or impost) is a charge for the movement of goods through a
political border. Tariffs discourage trade, and they may be used by
governments to protect domestic industries. A proportion of tariff
revenues is often hypothecated to pay government to maintain a navy
or border police. The classic ways of cheating a tariff are
smuggling or declaring
a false value of goods. Tax,
tariff and trade rules in modern times are usually set together
because of their common impact on industrial
policy, investment
policy, and agricultural
policy. A trade bloc is
a group of allied countries agreeing to minimize or eliminate
tariffs against trade with each other, and possibly to impose
protective tariffs on imports from outside the bloc. A customs
union has a common external tariff, and, according to an agreed
formula, the participating countries share the revenues from
tariffs on goods entering the customs union.

Toll

A toll is a tax or fee charged to travel via a
road,
bridge,
tunnel or
other route. Historically tolls have been used to pay for state
bridge, road and tunnel projects. They have also been used in
privately constructed transport links. The toll is likely to be a
fixed charge, possibly graduated for vehicle type, or for distance
on long routes.

Shunpiking is
the practice of finding another route to avoid payment of tolls. In
some situations where tolls were increased or felt to be
unreasonably high, informal shunpiking by individuals escalated
into a form of boycott
by regular users, with the goal of applying the financial stress of
lost toll revenue to the authority determining the levy.

Transfer tax

Historically, in many countries, a contract
needed to have a stamp affixed to make it valid. The charge for the
stamp was either a fixed amount or a percentage of the value of the
transaction. In most countries the stamp has been abolished but
stamp
duty remains. Stamp duty is levied in the UK on the purchase of
shares and securities, the issue of bearer instruments, and certain
partnership transactions. Its modern derivatives, stamp
duty reserve tax and stamp
duty land tax, are respectively charged on transactions
involving securities and land. Stamp duty has the effect of
discouraging speculative purchases of assets by decreasing
liquidity. In the US transfer tax is often
charged by the state or local government and (in the case of real
property transfers) can be tied to the recording of the deed or
other transfer documents. Taxes on currency transactions are known
as Tobin
taxes.

Value Added Tax / Goods and Services Tax

A value added tax
(VAT), also known as 'Goods and Services Tax' (G.S.T), or 'Impuesto
Indirecto sobre la Prestacion de Servicios' (I.S.I.), Single
Business Tax, or Turnover Tax in some countries, applies the
equivalent of a sales tax to every operation that creates value. To
give an example, sheet steel is imported by a machine manufacturer.
That manufacturer will pay the VAT on the purchase price, remitting
that amount to the government. The manufacturer will then transform
the steel into a machine, selling the machine for a higher price to
a wholesale distributor. The manufacturer will collect the VAT on
the higher price, but will remit to the government only the excess
related to the "value added" (the price over the cost of the sheet
steel). The wholesale distributor will then continue the process,
charging the retail distributor the VAT on the entire price to the
retailer, but remitting only the amount related to the distribution
mark-up to the government. The last VAT amount is paid by the
eventual retail customer who cannot recover any of the previously
paid VAT. For a VAT and sales tax of identical rates, the total tax
paid is the same, but it is paid at differing points in the
process.

VAT is usually administrated by requiring the
company to complete a VAT return, giving details of VAT it has been
charged (referred to as input tax) and VAT it has charged to others
(referred to as output tax). The difference between output tax and
input tax is payable to the Local Tax Authority. If input tax is
greater than output tax the company can claim back money from the
Local Tax Authority. VAT was historically used to counter evasion in a
sales tax or excise. By collecting the tax at each production
level, the theory is that the entire economy helps in the
enforcement. However, forged invoices and similar evasion methods
have demonstrated that there are always those who will attempt to
evade taxation.

Economic theorists have argued that the
collection process of VAT minimises the market distortion resulting
from the tax, compared to a sales tax. However, VAT is held by some
to discourage production.

Wealth (net worth) tax

Some countries' governments will
require declaration of the tax payers' balance
sheet (assets and liabilities), and from that exact a tax on
net
worth (assets minus liabilities), as a percentage of the net
worth, or a percentage of the net worth exceeding a certain level.
The tax is in place for both "natural"
and in some cases legal
"persons".